Unions and the Minimum Wage
You should notice that it’s many times the unions, and workers that are part of these unions, that seem to be the biggest pushers of raising the minimum wage. This is despite the fact that people working in unionized workplaces don’t make minimum wage – they make some of the highest wages made by people in the working class, far, far above minimum wage. Doesn’t it strike you as odd that people making many times minimum wage are the ones that seem to push the most the raising of the minimum wage? It did seem odd to me, too, until I realized an important point in all of this, and this is where the American south comes into the picture.
You see, the American north, especially the American northeast, was highly industrialized and highly unionized. Compare that to how the American south was – it was largely non-unionized, not very industrialized, and the cost of living was substantially lower. In other words, if you lived in the south, you wouldn’t need to make as much money to get the same standard of living. This dynamic in the south actually gave it a competitive advantage over rival firms located in the north – the competitive advantage of lower price.
Remember, in a competitive and capitalistic society, firms that are competing against each other for customers have a variety of different mechanisms that they can use to try to steal their competitor’s customers and make more money and profits, all of which benefit us as the customer, and one of those competitive mechanisms is lower price.
Think about this from the customer’s point of view – you need to buy a certain product, and one business is offering the product for one price, but they have a competitor who is offering the same product for substantially less money. Who do you buy the product from? The answer is a “no-brainer.” You buy that product for the cheaper amount, thus saving some money, and letting your money stretch farther. The business offering the product for a lower price gets to make money off of you, not the business with the jacked-up prices.
Northern industries that tended to be highly industrialized knew that southern firms could produce the same products as them in the north, but for substantially less. They could pay their workers less money, because they needed less money to have the same standard of living as those living in the northeast, and this allowed them to produce things at lower cost than the northeast, and sell those things to customers at a lower cost. This lower price for goods produced in the south is what gave the south its competitive advantage over the northeast. This meant that customers, who would purchase from northern industries, would stop doing so, because they could save millions of dollars by getting those same products from the south.
Northern industries saw the south as a threat to their existence, and rightly so. Northern unionized workers saw the lower wages paid to workers in the south as a threat to their employment, and rightly so. That’s why they have always been some of the most active promoters of raising the national standardized minimum wage – by raising the wages of workers in the south, it ends up costing southern firms more money to produce their products, meaning their products are less competitive with northern products. Raising the minimum wage ends up taking away the south’s competitive advantage.
You’ll find that the American south today, because minimum wage laws have helped to take away the South’s competitive advantage in terms of lower costs to produce, are some of the poorest states in the United States. Mississippi, in the deep south, is the poorest of all of them. They are some of the least developed and least industrialized states in the entirety of the United States, although they are slowly catching up.
What Would Have Happened?
Now think about what would have happened if the south didn’t have their competitive advantage taken away from them. More business and economy would have been drawn to the south. Customers and firms around the country would have done business with southern industries. Northern firms would have been more likely to expand by putting their new factory somewhere in the south for its cost-saving advantages and “edge” it would have given them over their competitors. More economic growth would have taken place in the south. The differential between labor demand and labor supply would have helped drive up wages for those in the working class in the southern states – you would have seen those people at the lower end of the wage spectrum benefit the most, as their wages would have increased through market forces. The south today wouldn’t be seen as the poorest part of the Union; they would be on par with other parts of the country, particularly the American Midwest.
To put things another way, the political left’s claim, when they push for higher minimum wages, that it’s helping the poorest among us, and showing “compassion,” is really not true when you look at the bigger picture – their scheme is about protecting the well-being of one part of the country at the expense of another part of the country, thus causing a whole section of the country to be poorer than the rest.
Lesson Number 1: One-size-fits-all nationalized minimum wage laws take away the competitive advantage of cheaper parts of the country, thus hindering their economic growth, and causing them to be poorer than the rest.
Now, with this being said, is it morally wrong to make sure that workers, at the lowest end of the wage spectrum, have a “living wage,” that is, enough income to be able to take care of their living costs, like housing, transportation, and food? Well, if we do so, we’re missing an important element of the story.
With this in mind, I think the first thing we should do is find the people in minimum wage jobs, who are the primary breadwinners for their households, as rare as that may actually be, and figure out why they’re not looking for a better job, since most jobs pay higher than minimum wage. Maybe we could help find them that higher-paying job that allow them much more ability to pay for the cost of their living expenses, and leave the minimum wage jobs for high schoolers or college students, who aren’t concerned about cost of living because they’re still at home with their parents, or have their college education already paid for – these minimum wage jobs will allow them to enter the workforce and learn what it means to have a work ethic, and some job skills, something that comes in very handy once they get older and get higher-paying jobs.
As for those at the bottom end of the wage scale, there is something important to learn from this situation with how minimum wage laws impacted the American south. Not everyone has the same cost of living. Some places, like the east and west coasts of the United States, have a cost of living that’s substantially higher than the middle parts, or “flyover country” as some people like to call it. Other places, like the American south, have a cost of living substantially lower than, say, the west coast. To require that the south have the same minimum wage as the west coast doesn’t benefit the south, but takes away their competitive advantage, because they can pay their employees less, and those employees can still be making a living wage with that lesser amount.
Raising Minimum Wages – NOT Spreading the Wealth Around More Evenly
The higher one-size-fits-all minimum wage does benefit the parts of the country where the cost of living is higher, though. It takes away the competitive advantage of parts of the country with lower costs of living, and allows more of the wealth to stay with them, rather than be spread and distributed more evenly across the country. Here is a genuine case of the “haves versus have-nots.” The “haves,” such as the north, or the coasts, keep more of the business, economy, and wealth, while the “have-nots,” which would be the south in this case, ends up with less economic growth and wealth. So, minimum wage laws, in reality, if you have a one-size-fits-all cookie-cutter approach to a nationalized standard minimum wage, help to exacerbate and magnify the gap between the haves and have-nots.
This is why it’s important to let each region, or state, determine their own minimum wage based on regional differentials, rather than the federal government and their “one-size-fits-all” approach. It’s important to allow each state to determine their own minimum wage, based on their own individualized cost of living, without them getting rid of their state’s competitive advantage.
Or even better, go the Scandinavian route and not even have a minimum wage; instead, let local markets decide their own wages without the government stepping in with its own wage impositions.
Lesson Number 2: In order for different regions to take advantage of their “competitive advantage,” in terms of lower costs of living, let each state determine their own minimum wage based on their own state’s regional differential, and stop letting the federal government make a single minimum wage for the whole country. Or go the Scandinavian route and not have a minimum wage at all.
